Ventas Inc. (VTR), a leading healthcare real estate investment trust (REIT), reported second quarter 2010 funds from operations (FFO) of $101.3 million or 64 cents per share, compared to $96.6 million or 63 cents in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and other non-cash expenses to net income.
The quarterly FFO included certain non-recurring items. Excluding the one-time items, adjusted FFO for second quarter 2010 was $111.9 million or 71 cents per share compared to $105.1 million or 68 cents in the year-ago quarter. The recurring FFO per share for the quarter beat the Zacks Consensus estimate by 2 cents.
The increase in year-over-year FFO was primarily due to rental increases from its triple-net lease portfolio, and higher Net Operating Income (NOI) from its senior living and medical office building (MOB) operating portfolios, partially offset by higher weighted average diluted shares outstanding during the quarter.
Total revenues during the quarter were $244 million compared to $231.5 million in the year-earlier quarter. Revenues during the reported quarter marginally beat the Zacks Consensus estimate of $243.0 million.
Ventas currently has an operating portfolio of 79 senior housing communities in North America that are managed by Sunrise Senior Living Inc. (SRZ). In about 21 of these, Ventas has 100% ownership stake, while in the remaining 58 communities Ventas has a partnership share of 75% to 85% with the balance being owned by Sunrise.
NOI from all 79 properties was $38.8 million during the quarter, compared to $33.9 million in the year-ago period. The year-over-year increase was primarily due to a 3.5% rise in average daily rate and a 190 bps increase in occupancy. The skilled nursing facilities and hospitals portfolio that are leased to Kindred Healthcare Inc. (KND) reported a 5.4% increase in same-store NOI during the quarter compared to the year-ago period.
During the quarter, Ventas acquired Lillibridge Healthcare Services, a premier Chicago-based fully-integrated healthcare real estate company, to extend its footprint in MOBs and ambulatory facilities segment. With the acquisition, Ventas obtained a 100% stake in 38 MOBs spanning 1.9 million square feet of space. In addition, the company gained a 20% joint venture interest in 24 MOBs spanning 1.5 million square feet and a 5% joint venture interest in 34 MOBs comprising 2.3 million square feet of space. Ventas will function as the property manager of these joint venture properties.
The acquisition, priced at $381 million, was funded with available cash, mortgage debt, and debt from revolving credit facility. Ventas expects the acquisition to be accretive to 2010 recurring FFO. With the deal, the company has become the national leader in MOB segment with a portfolio of 8.6 million square feet.
During the quarter, Ventas sold 4 senior housing properties for $22.5 million, realizing a profit of $4.9 million. The company also acquired non-controlling interests in 2 Sunrise-managed properties for $9.9 million.
At quarter-end, Ventas had $126.3 million available under its revolving credit facility, $872.7 million additional undrawn availability, and $27.8 million of cash and short-term cash investments. The company’s debt to total capitalization at quarter end was approximately 26% with net debt to adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) being 4.0x.
For full year 2010, Ventas has increased its recurring FFO guidance in the range of $2.75 – $2.80 per share from $2.69 – $2.75. The company has also increased its NOI guidance from Sunrise-owned properties to $139 million – $145 million from $128 million – $138 million. We maintain our Neutral recommendation on the stock with a Zacks #3 Rank, which translates into a short-term “Hold” rating.
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